Nikko Asset Management ETFs
With its cutting-edge product development and broad product line-up, Nikko Asset Management is in the forefront of Japan’s exchange traded fund industry. The firm is passionately committed to the development of an ETF market which offers a range of low-cost investment products to Japanese investors. To this end, it has led the industry in educating investors on ETFs.
In FY2010, Nikko AM launched and listed 10 new ETFs, more than any other provider in Japan. More recently, at end-March 2012, it launched an ETF investing in the government bonds of emerging countries. As of 2012, Nikko AM products accounted for close to one fifth of the 118 ETFs listed on the Tokyo Stock Exchange, with 21 issues, and one third of the assets under management for domestic ETFs, with a balance of approximately JPY700 billion.
The firm endeavours to develop ETFs that are easy-to-use, inexpensive, and meet the needs of investors in Japan. But it also views the products as a vehicle to help investors rediscover the appeal of Japanese equities.
Specifically, Nikko AM develops products that can be easily used in conventional portfolios, alongside Japanese stocks or other ETFs on the market. But the firm also makes sure that they meet specific investment needs which have been expressed by clients and distributors.
Nikko AM’s efforts have resulted in a number of awards. In March 2010, the company was named the best Asia Pacific ETF management firm at the 2010 ETF Express Awards. It received the same accolade the following year.
For most of the Japan ETF market’s history, only Japanese equity ETFs could be offered. But regulations have been relaxed to allow international ETFs. Through its collaboration with the major stock exchanges in Japan, Nikko AM took a leading role in the implementation of this new framework. Given the enormous complexity of the different ways taxes are levied on securities in Japan and other countries, it is not easy to launch ETFs that invest in foreign assets. Instead of employing methods used in many European ETFs, such as swaps, Nikko AM has developed innovative structures that use cash equities and some listed futures.
Governance and Transparency
In addition to ETF product development, Nikko AM is also improving disclosure in order to satisfy the needs of its retail and institutional clients. The firm was the first in the industry in Japan to offer weekly disclosure and is the first and (as of end-March 2012) only firm to offer daily disclosure.
In overseas ETF markets, daily disclosure of ETF-held securities is standard practice and an indispensable source of information for ETF market makers who seek to quote prices. Initially in Japan, the only ETFs on the market were those traditionally managed with the full replication method, for which disclosure was usually performed on a monthly basis. Nikko AM changed industry practices through leading the way with weekly ETF disclosure. In December 2010, the firm made another huge leap in commencing daily disclosure of its Japanese equity ETFs. From March 2012, daily disclosure commenced for all of its ETFs.
This provision of daily disclosure led the Tokyo Stock Exchange to begin calculating and releasing indicative NAVs for ETFs. This is one example of how Nikko AM has greatly contributed to the modernisation and development of Japan's ETF market.
Development of the Market
In addition, as part of its disclosure practices, Nikko AM has provided English translations of its prospectuses on its website since the summer of 2010. It is well known that a large percentage of trading in Japan's equity ETFs is conducted by non-Japanese investors and brokers. Therefore this move to provide material in English helps establish a more global trading environment.
Nikko AM continuously endeavours to increase the popularity of ETFs in Japan. For example, the company extended special benefits (beneficiary benefits) to shareholders of one of its ETFs, the first initiative of its kind in Japan and, possibly, the world.
Specifically, in December 2010 and July 2011, Nikko AM presented bookstore gift vouchers to holders of one of its ETFs. The firm’s objective was to increase the number of individual shareholders. The initiative was favourably received, and media (newspaper and television) coverage contributed to an increase in trading and in the number of investors.
Through its ETF development, listing, disclosure and marketing activities, Nikko AM is a driving force of the Japanese ETF market.